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How to Find Strong Buy Auto, Tires and Trucks Stocks Using the Zacks Rank

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Building a successful investment portfolio takes skill and hard work, no matter if you're a growth, value, income, or momentum-focused investor.

How do you find the right combination of stocks that will generate returns that could fund your retirement, or your kids' college tuition, or your short- and long-term savings goals?

Enter the Zacks Rank.

What is the Zacks Rank?

The Zacks Rank, which is a unique, proprietary stock-rating model, employs earnings estimate revisions, or changes to a company's earnings expectations, that makes building a winning portfolio easier.

There are four main factors behind the Zacks Rank: Agreement, Magnitude, Upside, and Surprise.

Agreement is the extent to which all brokerage analysts are revising their earnings estimates in the same direction. The greater the percentage of analysts revising their estimates higher, the better chance the stock will outperform.

Magnitude is the size of the recent change in the consensus estimate for the current and next fiscal years.

Upside is the difference between the most accurate estimate, which is calculated by Zacks, and the consensus estimate.

Surprise is made up of a company's last few quarters' earnings per share surprises; companies with a positive earnings surprise are more likely to beat expectations in the future.

These four factors are assigned a raw score that's recalculated every night, which is then compiled into the ranking system. Stocks are classified into five groups using this data, ranging from "Strong Buy" to "Strong Sell."

The Power of Institutional Investors

The Zacks Rank also allows individual investors, or retail investors, to benefit from the power of institutional investors.

Institutional investors are the professionals who manage the trillions of dollars invested in mutual funds, investment banks, and hedge funds. Studies have shown that these investors can and do move the market due to the large amounts of money they invest with. Because of this, the market tends to move in the same direction as institutional investors.

In order to determine the fair value of a company and its shares, institutional investors design valuation models that focus on earnings and earnings estimates. Because if you raise earnings estimates, it then creates a higher fair value for a company and its stock price.

With these changes, institutional investors will act, usually buying stocks with rising estimates and selling those with falling estimates. An increase in earnings expectations can potentially lead to higher stock prices and bigger gains for the investor.

Retail investors who get in at the first sign of upward revisions have a distinct advantage over larger investors since it can often take weeks, if not months, for an institutional investor to build a position. They'll also benefit from the expected institutional buying that could follow.

Not only can the Zacks Rank help you take advantage of trends in earnings estimate revisions, but it can also provide a way to get into stocks that are highly sought after by professionals.

How to Invest with the Zacks Rank

The Zacks Rank is known for transforming investment portfolios. In fact, a portfolio of Zacks Rank #1 (Strong Buy) stocks has beaten the market in 26 of the last 32 years, with an average annual return of +25.41%.

Moreover, stocks with a new #1 (Strong Buy) ranking have some of the biggest profit potential, while those that fell to a #4 (Sell) or #5 (Strong Sell) have some of the worst.

Let's take a look at CNH Industrial (CNHI), which was added to the Zacks Rank #1 list on September 22, 2021.

CNH Industrial N.V., with principal office in London, United Kingdom, offers vehicles for agricultural and industrial purposes. Its products range from tractors to trucks and buses, along with powertrain solutions for off and on-road, and marine vehicles. It has 12 brands that offer equipment, catering to a wide consumer base. In September 2013, the company was formed after merging Fiat Industrial S.p.A. (“Fiat Industrial”) and CNH Global N.V. (“CNH Global”). It has four operating segments:

For fiscal 2021, seven analysts revised their earnings estimate upwards in the last 60 days, and the Zacks Consensus Estimate has increased $0.19 to $1.32 per share. CNHI boasts an average earnings surprise of 179.7%.

Earnings are forecasted to see growth of 371.4% for the current fiscal year, and sales are expected to increase 25.9%.

Additionally, CNHI has climbed higher over the past four weeks, gaining 0.1%. The S&P 500 is down 1.9% in comparison.

Bottom Line

With a #1 (Strong Buy) ranking, positive trend in earnings estimate revisions, and strong market momentum, CNH Industrial should be on investors' shortlist.

If you want even more information on the Zacks Ranks, or one of our many other investing strategies, check out the Zacks Education home page.

Discover Today's Top Stocks

Our private Zacks #1 Rank List, based on our quantitative Zacks Rank stock-rating system, has more than doubled the S&P 500 since 1988. Applying the Zacks Rank in your own trading can boost your investing returns on your very next trade. See Today's Zacks #1 Rank List >>


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